Better Marijuana Stock: Canopy Growth vs. KushCo Holdings

Big versus small. Pure-play marijuana stock against ancillary services provider. The choice between Canopy Growth (NYSE: CGC) and KushCo Holdings (NASDAQOTH: KSHB) offers several stark contrasts.

KushCo proved to be the better choice last year, more than doubling the gain achieved by Canopy. However, it's a much different story so far in 2019, with Canopy Growth soaring more than four times as much as KushCo has. But which of these two very different marijuana stocks is the better pick for investors now?

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The case for Canopy Growth

It's pretty easy to argue why Canopy Growth is worthy of investors' attention. The global marijuana market is poised for phenomenal growth. And Canopy is perhaps in the best position of any marijuana producer to capitalize.

One major reason Canopy Growth is so well positioned globally is its relationship with Constellation Brands. The big alcoholic beverage maker initially invested in Canopy in 2017, then followed up with a massive $4 billion investment in 2018. This deal gave Canopy Growth a big cash stockpile to use in funding its expansion. It also provided the company with a partner that has been very successful in building commercial brands.

Canopy Growth's production capacity ranks near the top in the cannabis industry. Its global footprint is arguably the best in the industry, with the company's operations stretching from Canada to South America to Europe to southern Africa to Australia. 

The Canadian recreational marijuana market is just taking off, and medical marijuana markets in Germany, the United Kingdom, and other countries are still in their early stages. Canopy Growth should benefit from growth in all of these markets.

And while the biggest marijuana market in the world -- the U.S. -- is still off-limits to Canopy Growth, the company is entering the U.S. in another way. Canopy announced in January that it plans a large-scale hemp production facility in New York State. The recent U.S. legalization of hemp should open up a big new opportunity for Canopy in hemp-based cannabidiol (CBD) products.

The case for KushCo Holdings

KushCo isn't restricted from operating in the U.S. because of a stock exchange listing, as Canopy Growth is. The company's focus on meeting the needs of U.S. marijuana businesses has enabled KushCo to become the leading supplier of packaging solutions for the cannabis industry.

Providing packaging for marijuana businesses isn't as easy as you might think. Regulations vary greatly from state to state for packaging and labeling of cannabis products. Customers frequently need quick turnarounds from suppliers. And because state laws typically limit the types of advertising that cannabis companies can use, differentiation in packaging is very important. KushCo meets all of these needs.

KushCo has also expanded into other areas. The company's Kush Energy subsidiary supplies hydrocarbons and solvents used in producing cannabis oils. Its Hybrid Creative subsidiary provides brand development and e-commerce solutions to the cannabis industry.

The company should be able to grow as the overall U.S. marijuana market grows. Thirty-three states have legalized medical marijuana, with 10 states also allowing the legal sale of recreational marijuana. KushCo's sales should rise as these markets mature.